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330 SUPREME COURT REPORTS ANNOTATED
Buce vs. Court of Appeals
*
No. L-75575. January 25, 1988.
SPOUSES ROGELIO BUCE and ANITA BUCE,
petitioners, vs. HON. COURT OF APPEALS and RAMON
DELOS REYES, In His Own Behalf And On Behalf Of
RHODORA DELOS REYES BERISH, respondents.
Civil Law; Mortgage, not sale; Where there exists other
circumstances which when considered jointly with the finding that
the price of the sale was unusually inadequate, the agreement was
in truth one of mortgage and not of sale.—There is no real
inconsistency between the ruling in the cases cited by the private
respondent and our present pronouncements because in the
former, we simply said that the mere disproportion of the price to
the value of the land, in the absence of other circumstances
incompatible with the contract of purchase and sale, can not alone
justify the conclusion that the transaction was a pure and
________________
* SECOND DIVISION.
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VOL. 157, JANUARY 25, 1988 331
Buce vs. Court of Appeals
simple loan. Now, we are saying that in the instant case there
exist other circumstances, which, when considered jointly with
our finding that the price of the “sale” was unusually inadequate,
would constitute clear and convincing proof that the agreement in
question was, in truth, one of mortgage and not a sale.
Same; Same; Contract presumed to be equitable mortgage
pursuant to Article 1602 of the Civil Code; Real intention of the
parties was to secure payment of loan extended by petitioners to
respondent.—In fine, Article 1602, in relation to Article 1604 of
the Civil Code of the Philippines finds strong application in the
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case at hand in the light of the following attendant circumstances:
1) the price of the “sale” was unusually inadequate; 2) the
apparent vendor remained in possession of the properties “sold”;
3) the vendor continued to pay the taxes on the things “sold”; and
4) the vendor paid interest on the supposed consideration of the
“sale”. From these circumstances it may be fairly inferred that the
real intention of the parties was to secure the payment of the
P179,000 loan extended by the petitioners to the respondent.
Same; Same; Same; Although the deed purports to be one of
sale, the real intention of the parties was to execute a mortgage to
guaranty the payment of a loan; Reformation of instrument may be
filed by the apparent vendor, the private respondent.—In sum, we
are fully convinced that although the deed in question purports to
be one of sale, the real intention of the parties was to execute a
mortgage to guaranty the payment of a loan. Thus, pursuant to
Article 1605 of the Civil Code, the private respondent, as the
apparent vendor, may ask for the reformation of the instrument.
PETITION for review from the decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
SARMIENTO, J.:
The question posed in this petition for review is simple:
Was the contract entered into between the petitioners and
the private respondent one of sale or real estate mortgage?
The undisputed facts in this case, as found by the trial
court, are as follows:
xxx xxx xxx
The plaintiffs were the registered owners of three parcels of
land covered by TCT No. 495974 situated at Cainta, Taytay,
Rizal, and TCT Nos. 128979 and 128980, both situated at
Pandacan, Manila, which they mortgaged with Monte de Piedad
& Savings Bank to secure a loan
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332 SUPREME COURT REPORTS ANNOTATED
Buce vs. Court of Appeals
of P178,953.37. When the loan matured, plaintiffs could not pay,
so, the mortgage was foreclosed by the Monte de Piedad &
Savings Bank. In July, 1979, plaintiffs sold to the defendants-
spouses the aforementioned properties, together with all the
improvements therein for a consideration of P179,000.00, and the
transaction is covered by a Deed of Sale marked as Exhibit “A” for
the plaintiff, and Exhibit “4” for the defendant. The consideration
of the deed of sale (P179,000.00) was used by plaintiffs to
repurchase the foreclosed properties from the Monte de Piedad &
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Savings Bank, as shown by Exhibits “1” and “1-A.” After the
foreclosed properties were repurchased by the plaintiffs, they
were simultaneously sold and delivered to the defendants-spouses
as previously stated, by virtue of a deed of sale, Exhibit “A”.
Plaintiffs filed this case for reformation of the deed of sale,
Exhibit “A”, with damages, They alleged that although Exhibit
“A” is an absolute deed of sale, it does not reflect or express the
true intention between the parties by reason of fraud and/or
inequitable conduct on the part of the defendants, citing Article
1369 of the Civil Code. That the amount of P179,000.00, as
consideration of the alleged deed of sale, was only a loan extended
by defendants to plaintiffs, and that the properties described
therein were mortgaged to secure the loan. That the verbal
understanding was for plaintiffs to pay a monthly interest of
P4,000.00, and that, defendants actually paid the amount of
P20,000.00 as interest; Exhibit “B-1”, where they paid interest in
the amount of P40,000.00; Exhibit “B-2”—where they paid
interest in the amount of P30,000.00, and Exhibits “C”, “C-1”, “C-
2” and C-3”, the computations showing that plaintiffs have paid
substantial amounts as interest. Plaintiff(s) further presented
Exhibit “D”—pictures of a house constructed in one of the lots in
Manila, showing that it is an expensive residential house, and
Exhibits “E”, “E-l”, and “E-2”, which are tax receipts showing that
they were paying
1
the real estate taxes of the properties involved
in this case.
xxx xxx xxx
After receiving and weighing the evidence of both parties,
the trial court rendered judgment 2
dismissing the complaint
with costs against the plaintiffs.
The plaintiffs subsequently appealed to then
Intermediate Appellate Court, now Court of Appeals, which
set aside the trial court’s decision, and entered another one:
________________
1 Decision, 2-4; Rollo, 23-25.
2 Rendered by Judge Alfredo C. Florendo, Regional Trial Court, Branch
X X XVI-Manila.
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VOL. 157, JANUARY 25, 1988 333
Buce vs. Court of Appeals
xxx xxx xxx
1. Declaring the subject document, denominated as Deed of
Sale (Exhibit a), as one of real estate mortgage.
2. Ordering the defendants-appellees Rogelio Buce and Anita
Buce to execute a formal Deed of Real Estate Mortgage
covering the subject properties in reformation of the
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document dated September 10, 1979, provided that if the
said spouses fail to do so within thirty (30) days from
notice of this judgment, then the Clerk of the lower court
is hereby authorized to execute the same for and in behalf
of the said spouses, the defendants-appellees herein.
3. Directing the Register of Deeds for Manila to cancel and
revoke Transfer Certificates of Title Nos. 135302 and
135303 issued in the name of defendants-appellees Rogelio
Buce and his wife Anita Buce and to reinstate 3
Transfer
Certificates of Titles Nos. 135028 and 135029.
xxx xxx xxx
From the foregoing judgment, the defendants-spouses, now
petitioners, filed the instant petition of appeal by certiorari.
We can not find any reversible error in the findings and
conclusions of the respondent court sufficient to warrant
the setting aside of its questioned decision. As correctly
found by the respondent court, the consideration of the
supposed sale in the amount of P179,000.00 is inadequate.
Private respondent Ramon de los Reyes testified that the
market value of the property located along Narciso St.,
Pandacan, Manila, consisting of a house and lot, is
P450,000; that another house and lot situated in Talundon,
Pandacan, Manila is valued at P150,000; while the vacant
residential lot in Brookside Subdivision, Cainta, Rizal is
worth P100,000. Granting that the respondent is not an
expert at evaluating the market values of properties, the
petitioners themselves stated in their tax declarations that
the two Pandacan properties have an aggregate market
value of P236,220.00. When we add to this amount the
value of the third property located in Brookside
Subdivision, the inadequacy of the said consideration of
P179,000 becomes even more apparent. It will be noted
that one of the two properties located in Pandacan consists
of a lot on which stands an expensive residential house—
this alone would already command a hefty sum.
Furthermore,
________________
3 Decision, 5-6; Rollo, 37-38; Intermediate Appellate Court, Second Civil
Cases Division; Justice C. Pascual, ponente with the concurrence of
Justices Campos, Jr., Camilon and Jurado.
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we cannot accept as purely coincidental the glaring fact
that while the stated consideration for the supposed sale
was P179,000, the private respondent’s indebtedness to the
bank amounted to P178,953.37, or a difference of only
P46.63. Thus, the most logical conclusion that may be
derived from the foregoing is that the P179,000 pesos was,
in truth, a loan by the petitioners to the private respondent
to enable the latter to redeem his property which was
foreclosed by the bank. Besides, had it been the private
respondent’s real intention to sell rather than to mortgage,
we believe that he could have easily found buyers for the
properties who would be willing and able to pay a price
considerably higher than P179,000.00.
Furthermore, it has been satisfactorily proven that from
the time of execution of the contract in issue on September
10, 1979, the realty taxes, for the years 1980 and 1981, on
the three properties objects of the “sale”, were still paid by
the private respondent—apparent vendor (plaintiff-
appellant below). And in the words of the respondent court:
x x x While it may be true that the defendants-appellees paid the
real taxes on the subject properties in 1982, the fact remains that
such payment was made after the filing of the complaint on
September 9, 1981 and only after the plaintiff-appellant had
already paid the taxes for the first two years immediately
preceding (sic) the execution of the document in question. Clearly,
the payment of the taxes in 1982 by the defendants-appellees was
a belated attempt on their part
4
to reinforce their claim that the
document was a deed of sale.
The conclusion of the respondent court to the effect that the
private respondent had been paying interest to the
petitioners on the P179,000.00 loan has not been assailed
in the instant petition.
Petitioners, however, took exception to the conclusion of
the respondent court that the private respondent remained
in possession of the subject properties. The petitioners
claimed that the present occupancy by the private
respondent of the house along Narciso St., Pandacan is
merely the consequence of a previous verbal agreement
between them and the respondent’s mother, allowing the
latter to remain therein for two years, and the respondent
now refuses to vacate the premises despite the
________________
4 Id., 3; Rollo, 35.
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expiration of the said grace period. It is repeatedly stressed
by the petitioners in their pleadings that the private
respondent deliberately refrained from presenting his
mother as witness in order to conceal from the trial court
the existence of such an agreement. Suffice it to state that
were the petitioners really determined to reveal this
alleged verbal agreement, they could have simply asked the
court to subpoena the private respondent’s mother to
appear as a witness, but they did not.
There is no real inconsistency between the ruling in the
cases cited by the private respondent and our present
pronouncements because in the former, we simply said that
the mere dispropor-tion of the price to the value of the land,
in the absence of other circumstances incompatible with
the contract of purchase and sale, can not alone justify the
conclusion that the transaction was a pure and simple loan.
Now, we are saying that in the instant case there exist
other circumstances, which, when considered jointly with
our finding that the price of the “sale” was unusually
inadequate, would constitute clear and convincing proof
that the agreement in question was, in truth, one of
mortgage and not a sale.5 6
In fine, Article 1602, in relation to Article 1604 of the
Civil
________________
5 Art. 1602. The contract shall be presumed to be an equitable
mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is unusually
inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase
another instrument extending the period of redemption or
granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase
price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real
intention of the parties is that transaction shall secure the
payment of a debt or the performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be
received by the vendee as rent or otherwise shall be considered as interest
which shall be subject to the usury laws.
6 Art. 1604. The provisions of Article 1602 shall also apply to a contract
purporting to be an absolute sale.
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Buce vs. Court of Appeals
Code of the Philippines finds strong application in the case
at hand in the light of the following attendant
circumstances: 1) the price of the “sale” was unusually
inadequate; 2) the apparent vendor remained in possession
of the properties “sold”; 3) the vendor continued to pay the
taxes on the things “sold”; and 4) the vendor paid interest
on the supposed consideration of the “sale”. From these
circumstances it may be fairly inferred that the real
intention of the parties was to secure payment of the
P179,000 loan extended by the petitioners to the
respondent.
In sum, we are fully convinced that although the deed in
question purports to be one of sale, the real intention of the
parties was to execute a mortgage to guaranty
7
the payment
of a loan. Thus, pursuant to Article 1605 of the Civil Code,
the private respondent, as the apparent vendor, may ask
for the reformation of the instrument.
WHEREFORE, in view of the foregoing, the petition for
review is hereby DENIED, for lack of merit, and the
decision of the respondent Intermediate Appellate Court
(now Court of Appeals) is hereby AFFIRMED. With costs
against the petitioners.
SO ORDERED.
Yap (Chairman), Melencio-Herrera, Paras and Padilla,
JJ., concur.
Petition denied. Decision affirmed.
Notes.—Where the option to repurchase was not
supported by a consideration distinct from the price, the
option is void. (Rural Bank of Parañaque, Inc. vs.
Remolado, 135 SCRA 409.)
Fact that seller of realty still continued collecting
rentals from the tenant thereof for 6 months after
execution of alleged deed of sale is contrary to the principle
of ownership. (Serrano vs. CA, 139 SCRA 179.)
——o0o——
________________
7 Art. 1605. In the cases referred to in articles 1602 and 1604, the
apparent vendor may ask for the reformation of the instrument.
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